When Buying a Property
Whether you’re a first-time buyer or an old hand in the market, real estate buying procedures in New York are constantly changing (even more so now with the new lending policies). It behooves you as a purchaser to know in advance what to expect from your real estate broker, your real estate attorney, your banker, and yourself!
WHAT A BUYER NEEDS TO KNOW BEFORE BEGINNING THE SEARCH FOR A HOME
Qualifying Yourself: What is your budget / what can you afford?
Before making any inquiries of a bank or mortgage broker you should CHECK YOUR CREDIT! I know we’ve all heard so much about the importance of credit over the past few years, but it cannot be stressed strongly enough that this is something that a person should monitor regularly, not just when you’re considering a purchase. You can keep an eye on your credit by checking your credit scores free once a year. Of course, you can subscribe to any number of services that monitor your credit for you on a regular basis for a fee as well; but you don’t want an outside party like a bank, mortgage broker or a real estate broker to check it for you, as any inquiry into your credit from a source other than yourself creates a ‘hit’ on your credit, which may lower your score.
I don’t know that I’ve ever encountered an accurate credit report over the years. There is almost always incorrect information reported. One of the most common errors is on the home-owner’s credit report when a refinance has occurred. The original lender (which was paid off when the home was refinanced by a second lender) often doesn’t record the debt as settled. I have seen as many as three mortgages showing for the same property, two of which were paid off in refinancing. This shows as an inflated real estate balance on the report and has a very negative impact.
Errors on credit reports can be corrected via letters and emails and there are lots of websites that offer guidance with the process of correcting errors as well as the instructions that accompany the annual free credit reports. These mistakes can be corrected but they can be time-consuming. You don’t want to first start correcting your credit report once you’ve decided to make a purchase.
After your credit report is sorted out, the first call you should make is to a banker or mortgage broker with all of your financial information in-hand to determine how much you are qualified to spend. KNOW THE DIFFERENCE BETWEEN CO-OP AND CONDO FINANCIAL REQUIREMENTS. Without going into great detail, it is safe to say that in general co-ops require larger down payments and significantly higher financial reserves to qualify for purchase than a condo requires. In today’s lending world, more and more banks are structuring their lending requirements in the more conservative manner of co-ops.
A good banker or mortgage broker will question you in-depth on what your debts are (even the obscure things you don’t consider debt) and what your savings and income sources are. Even in this conservative lending atmosphere a professional lender knows how to work with the borrower to find the best type of loan to accommodate the borrower’s needs and goals for the future.
This is the point where a buyer may realize that they’re not yet a buyer; and that what they thought they could afford and what the bank thinks they can afford are two different numbers. Even if you are that buyer, the exercise in preparation is well worth it. Now you know what your true position is as viewed by the bank and you can move forward from that point.
If you and the bank agree on your budget, the bank/mortgage broker should give you a ‘Pre-Qualification Letter’. It sounds profound, but its contents boil down to a boilerplate letter that says that on that particular day under the circumstances at that moment (your current employment/income and debt ratio) you are qualified to borrow ‘X’. This letter, along with $2.25, will get you on the subway; but it is still a key document that plays an important role when you are making an offer on a property.
The next step in the process…making your ‘Wish’ list and your ‘What I Can’t Live Without’ list and coming to grips with them both…
All material herein is intended for information purposes only and has been compiled from sources deemed reliable. Though information is believed to be correct, it is presented subject to errors, omissions, changes or withdrawal without notice.